With respect to the particular subject of discussion between us, you seem to be surprised that I should understand you to say in your book 'that vast powers of production are put into action, and the result is unfavourable to the interests of mankind.' Have you not said so? Is it not your objection to machinery that it often produces a quantity of commodities for which there is no demand, and that it is the glut which is the consequence of quantity which is unfavourable to the interests of mankind? Even as you state your proposition in your present letter, I have a right to conclude that you see great evils in great powers of production from the quantity of commodities which will be the result, and the low price to which they will fall. Saving, you would say, would first lead to great production, then to low prices, which would necessarily be followed by low profits. With very low profits the motives for saving would cease, and therefore the motives for increased production would also cease. Do you not then say that increased production is often attended with evil consequences to mankind because it destroys the motives to industry, and to the keeping up of the increased production? Now in much of this I cannot agree with you. I indeed allow that the case is possible, to conceive of saving being so universal that no profit will arise from the employment of capital; but then I contend that the specific reason is because all that fund, which should, and in ordinary cases does, constitute profit, goes to wages and immoderately swells that fund which is destined to the support of labour. The labourers are immoderately paid for their labour, and they necessarily become the unproductive consumers of the country. I agree too that the capitalists being in such a case without a sufficient motive for saving from revenue to add to capital, will cease doing so, will, if you please, even expend a part of their capital; but I ask what evil will result from this? None to the capitalist, you will allow, for his enjoyments and his profits will be thereby increased, or he would continue to save; none to the labourers, for which we should repine, because their situation was so exceedingly favourable that they could bear a deduction from their wages and yet be in a most prosperous condition. Here it is where we most differ. You think that the capitalist could not cease saving on account of the lowness of his profits, without a cessation in some degree of employment to the people. I, on the contrary, think that with all the abatements from the fund destined to the payment of labour, which I acknowledge would be the consequence of the new course of the capitalists, enough would remain to employ all the labour that could be obtained and to pay it liberally, so that in fact there would be little diminution in the quantity of commodities produced; the distribution only would be different; more would go to the capitalists and less to the labourers.
I do not think that stagnation is a proper term to apply to a state of things, in which for a time there is no motive to a further increase of production. When in the course of things profits shall be so low from a great accumulation of capital and a want of means of providing food for an increasing population, all motive for further savings will cease; but there will be no stagnation; all that is produced will be at its fair relative price, and will be freely exchanged. Surely the word stagnation is improperly applied to such a state of things, for there will not be a general glut, nor will any particular commodity be necessarily produced in greater abundance than the demand shall warrant.
You say, 'We know from repeated experience that the money price of labour never falls till many workmen have been for some time out of work.' I know no such thing; and, if wages were previously high, I can see no reason whatever why they should not fall before many labourers are thrown out of work. All general reasoning, I apprehend, is in favour of my view of this question, for why should some agree to go without any wages while others were most liberally rewarded? Once more I must say that a sudden and diminished demand for labour in this case must mean a diminished reward to the labourer, and not a diminished employment of him; he will work at least as much as before, but will have a less proportion of the produce of his work, and this will be so in order that his employer may have an adequate motive for employing him at all, which he certainly would not have if his share of the produce were reduced so low as to make increased production an evil rather than a benefit to him. 'It is' (never) 'said that an increase of unproductive consumption among landlords and capitalists may not sometimes be the proper remedy for a state of things in which the motives for production fail.' I know of no one who has recommended a perseverance in parsimony even after the profits of capital have vanished. I have never done so, and I should be amongst the first to reprobate the folly of the capitalist in not indulging himself in unproductive consumption. I have indeed said that nothing can be produced for which there will not be a demand, unless from miscalculation, while the employment of stock affords even moderate profits; but I have not said that production may not in theory be pushed so far as to destroy the motive on the part of the capitalist to continue producing to the same extent. I believe it might possibly be pushed so far, but we have never witnessed it in our days, and I feel quite confident that, however injurious such a state of things may be to the capitalist, it is so only because it is attended with disproportionate and unusual benefits to the labourers. The remedy, therefore, and the sole remedy, is a more just distribution of the produce; and this can be brought about only, as I said in my last letter, by an increase of workmen or by a more liberal unproductive expenditure on the part of the capitalists. I should not make a protest against an increase of consumption as a remedy to the stagnation of trade, if I thought as you do, that we were now suffering from too great savings; as I have already said, I do not see how stagnation of trade can arise from such a cause.
We appear then not to differ very widely in our general principles, but more so respecting the applications of them. Such and such evils may exist; but the question is do they exist now? I think not; none of the symptoms indicate that they do, and in my opinion increased savings would alleviate rather than aggravate the sufferings of which we have lately had to complain. Stagnation is a derangement of the system, and not too much general production, arising from too great an accumulation of capital.
Mr. Tooke has been here since Saturday last. I am going with him to-morrow to Bromesberrow[241], from whence he will go to Ross and down the Wye to Chepstow. We have had plenty of talk on subjects of political economy, and have found out points on which there is partial difference of opinion between us. He brought with him two pamphlets, in which you are often mentioned as well as myself; perhaps you have seen them: their titles are An Inquiry into those principles advocated by Mr. Malthus relative to the Nature of Demand and the necessity of Consumption[242], the other Observations on certain Verbal Disputes in political economy[243]. Mrs. Ricardo unites with me in kind regards to Mrs. Malthus and yourself. Mr. Tooke also desires to be kindly remembered.
Ever truly yours,
David Ricardo.
LXXVIII[244].
Gatcomb Park, 18 Sept., 1821.
My dear Malthus,
Without imputing the least blame to you, I fear that I do not quite understand your 'knotty point.' You appear to me to compare things together, which cannot, under any supposable circumstances, be made the subject of comparison. You compare a commodity, in the production of which the advances in labour remain the same while the profits of stock diminish, to another commodity 'obtained by a given quantity of labour, a given quantity of capital, and a given rate of profits.' Is not this supposing two rates of profit at the same time? Perhaps this was not meant, and your question was asked on the supposition of profits varying equally in all trades. If so, I have no hesitation in answering that, if, from an increased quantity of labour on the land, corn should appear to have doubled in money price, and not from any increased facility in the production of money, we ought to say, as we always do say, that corn had risen a hundred per cent., and not that money had fallen fifty. In differing on this point we in reality come to our old dispute, whether the quantity of labour in a commodity should be the regulator of its value, or whether the value of all things should, under all circumstances, be estimated by the quantity of corn for which they would exchange. You say 'we cannot surely assume that the cost of producing the necessaries of the labourer is low absolutely when the land is productive, if what is gained by the small quantity of labour employed is counterbalanced by the very high rate of profits.' I, of course, should say the cost of these necessaries was low if they were produced with little labour, but would not you, who adopt another measure and sometimes think value is to be estimated by the quantity of things generally which the commodity could command, would you not say, that the cost of these necessaries was small in value, agreeing, as you would, that they would not command an abundance of other things? I do not know what you mean by the low cost of necessaries being counterbalanced by the very high rate of profits. If a hundred quarters of corn be to be divided between my labourers and me, its cost being made up of wages and profits, its cost will be the same, whether profits be high or low, and this division will in no degree affect the price of the corn; but, if at a subsequent time eighty quarters only can be obtained with the same labour and capital, and in consequence a greater proportion of the eighty be given to the labourers than was before given of the hundred, corn will rise absolutely both in my measure and in yours. It is I who am willing to take some one or more of the external commodities[245] in the production of which, while the advances in labour increase in money value, the profits of stock diminish, as a steady measure, but which you so often reject, and insist that, whether the produce of a given quantity of labour be a hundred or eighty quarters, in either case, corn has remained a steady measure of value. In the case you have supposed, you say that the commodity, in which the same advances for labour were made, while profits diminished, 'would not only fall one half relatively to corn, but it would appear to do so estimated in any common external commodity which had all along been produced by the same quantity of labour, and at the same rate of profits.' I wish you had named this commodity. In the first place I deny that it would be produced at the same rate of profits, for there cannot be two rates of profit at the same time in the same country, and secondly I contend that this commodity would also fall to one half relatively to corn, and therefore would appear invariable when compared with the other commodities.